In the Weeds: Pennsylvania Says Don’t Inhale, Cease and Desist Letters in New York, Washington Robberies Cause Concern

February 23, 2022
Newsworthy Highlights

Pennsylvania Department of Health Bans Certain Vaporized Products. The Pennsylvania Department of Health Office of Medical Marijuana recently banned any cannabis product containing ingredients not approved for inhalation by the FDA. The department published a list of banned ingredients, in addition to a list of banned products containing additives not approved for inhalation by the FDA. The department also issued a mandatory recall for all vaporized products on the list of banned products. The department appears to be basing its decision on products the FDA has approved for use as excipients in drugs or have Generally Recognized as Safe Status (GRAS).

Companies operating in Pennsylvania should undertake a careful analysis of what, if any, ingredients may be safe for consumption and inhalation. Many may view this change as a de facto ban on vaping products given the potential difficulty in determining and formulating product ingredients for compliance.

New York State Tells Suspected Unlicensed Distributors to Cease and Desist Unauthorized Distribution. In January 2021, New York state passed the Marihuana Regulation and Taxation Act (MRTA), which, among other things, legalized adult-use cannabis and established an office of cannabis management to oversee licensing for the cultivation, processing, distribution and selling of cannabis to and by people 21 and older. The first licenses, however, are not expected to be issued until 2023. In the meantime, the Office of Cannabis Management, which sets and enforces rules for New York’s Medical Cannabis Program, recently issued cease and desist letters to dozens of suspected unlicensed distributors of cannabis. Businesses suspected of such activity risk substantial fines, possible criminal penalties, and the inability to obtain a license in the legal cannabis market once the framework for licensing is established and operative.

Under the MRTA, the adult-use market was expected to open April 1, 2022. However, before the adult-use cannabis market can open, the state must approve regulations set out by a five-member control board. As of June 29, 2021, no board was fully appointed. The appointment of a board and the establishment of a regulatory framework are preliminary steps on the road to a fully functioning legal adult-use cannabis market.

For now, all unlicensed sales of cannabis including in-person transactions at a retail location, sales via online delivery and “gifting” — where consumers purchase non-cannabis items and are then provided cannabis as part of the sale — are illegal. Importantly, landlords hosting any illegal activity on their premises jeopardize their ability to house a licensed retail dispensary in the future. As of Feb. 8, 2022, no adult-use licenses have been issued in New York state. The only means of procuring legal cannabis products is through the Medical Cannabis Program.

Utah Cannabinoid Product Board Votes Against Recommending Use of Delta-8 THC. The Utah Cannabinoid Product Board voted unanimously on Feb. 8, 2022, to take a stance against analog cannabinoids, including Delta-8 THC. The board is tasked with “review[ing] available research related to the human use of cannabinoid products” and “prescribing guidelines that may potentially be used by qualified medical providers recommending cannabinoid products to their patients.”

Speaking to a local news source, board chair Dr. Perry Fine explained that “there is no evidence of therapeutic benefit of the analog derived synthesized cannabinoids, [including] delta-8 THC.” Fine noted that “at this time, we do not support any therapeutic uses of analog cannabis products.” While Utah does have a medical cannabis program, the state has not legalized recreational use of cannabis products; the board’s recommendations, therefore, are limited in scope to the therapeutic uses of Delta-8 and other analog-derived synthesized cannabinoids.

Ultimately, the board does not have legislative authority, but state officials are likely to take the board’s guidance into consideration when considering legislative changes.

Washington Cannabis Retailers Call for Changes Following Increase in Robberies. Since November 2021, there have reportedly been over 30 robberies of retail cannabis facilities in Washington state, a statistic that has local businessowners on edge. Retail cannabis facilities deal primarily in cash, because the federal status of cannabis limits the banking options for these businesses. Brian Smith, a spokesperson for the Washington State Liquor and Cannabis Board, noted that “there is risk involved with marijuana retail stores . . . their business is essentially a cash-only business.” Chris Thompson, director of legislative relations for the board, noted to a local news outlet that “[u]ntil we get federal banking reform, these businesses are uniquely vulnerable.” Several attempts at federal banking reform have been introduced to allow banking services to be more widely available to legitimate cannabis businesses, but so far federal law has not changed.

In response to this increase in crime, the board is reportedly working to communicate safety guidelines with cannabis retailers. The board has emphasized that, as it does not have law enforcement power, it has only limited power to intervene. However, some business owners are not satisfied and are pushing for further protections, including Tom Bout, the founder of the Cannabis Professionals Network, who thinks “[t]hey should be figuring out a way to be more proactive. . . . [T]hey should be figuring out a way to fix it.”

Responding to these concerns, state legislators introduced a bill, SB 5927, to reduce these types of crime. The bill — passed unanimously by the state Senate on Feb. 10, 2022 — would require retail outlets to report any robbery or attempted robbery to the board within 10 days and would increase the legal penalties for robbing a retail cannabis facility.

Grassroots Federal/State Legislative Highlights

Colorado Department of Agriculture Adds Nine Pesticides Cannabis Growers Can Use. The Colorado Department of Agriculture has added nine more pesticides to its list, which if used, would not result in a violation of the Pesticide Applicators Act. Growers may now use the following pesticides on their marijuana crops: Annihilation, Earth’s Ally 3in1 Spray Concentrate, Earth’s Ally 3in1 Spray RTU, Earth’s Ally 3in1 Insect Control Concentrate, Essentria IC4 Insert Concentrate, Grower’s Ally Crop Defender 3 (Concentrate), Grower’s Ally Crop Defender 3 (RTU), Mad Farmer Root It, and Reset. The department evaluates various pesticide labels upon request and maintains a list of products that cannabis growers can use.

As discussed in McGuireWoods’ Jan. 12, 2022, alert, which reported that the department had added four pesticides to its list, it is important to check state rules with respect to pesticide use on marijuana crops as well as to ensure grow operations are not violating cannabis use rules or the Pesticide Applicators Act.

Kentucky Considers Adult-Use Cannabis. While 37 U.S. states permit some form of legalized cannabis, Kentucky is one of the few without a legal framework for medical or adult-use cannabis. However, through a newly introduced bill, Kentucky representatives have set their sights on building a comprehensive cannabis framework in the state, including parameters for the cultivation, transportation, sale, use and taxation of adult-use cannabis products. As seen in other states, this proposed legislation would create a Cannabis Oversight Commission to regulate the industry and oversee the licensing process in the state. The proposed legislation would also erase misdemeanor convictions for low-level cannabis offenders and fund substance abuse programs throughout Kentucky.

New York to Allow Hemp Licensees to Grow Cannabis. On Feb. 22, 2022, New York Gov. Kathy Hochul approved a bill allowing hemp growers to cultivate recreational-use marijuana. New York State Senate Bill S8084A allows existing licensed hemp growers and processors to cultivate and process cannabis under conditional adult-use cultivator licenses and conditional adult-use processor licenses. The intent of this legislation is to facilitate increased production of adult-use cannabis to meet the demand of New York’s adult-use cannabis market.

A conditional adult-use cultivator license will allow licensees to cultivate cannabis — up to 43,560 square feet of flowering canopy outdoors or 25,000 square feet of flowering canopy in a greenhouse, or a combination of the two, subject to limitations. Additionally, licensees will be permitted to minimally process and distribute cannabis flower products, without holding an adult-use processor or distributor license, through June 1, 2023, after which a processor and distributor license will be required. To be eligible for a conditional adult-use cultivator license, industrial hemp growers must have held an authorization as of Dec. 31, 2021; be in good standing with the Department of Agriculture and Markets; have grown and harvested hemp for at least two of the past four years; and have at least a 51% ownership interest in the entity that is the licensee.

A conditional adult-use processor license will allow licensees to process and manufacture cannabis products, subject to the requirements and restrictions applied to adult-use processors and any other new requirements developed for conditional licensees. Further, licensees will be permitted to distribute cannabis products without holding an adult-use distributor license through June 1, 2023, after which a distributor license will be required. To be eligible for a conditional adult-use processor license, applicants must have applied for a cannabinoid hemp processor license before Jan. 1, 2022, hold an active cannabinoid hemp processor license issued by the Office of Cannabis Management, and have at least a 51% ownership interest in the entity that is the licensee.

Conditional adult-use cultivator licenses and conditional adult-use processor licenses will be issued through Dec. 31, 2022, and will be valid through June 30, 2024. Licensees must be operational within six months of the date of receipt of the license.

Investments and Transactions Highlights

Diego Pellicer Worldwide to Acquire Hemp Choice Distribution, LLC. Diego Pellicer Worldwide, Inc., a cannabis company, announced it has entered into a definitive agreement to acquire Hemp Choice Distribution, LLC, a hemp and CBD company that provides certified oils, distillates and powders, for $4.4 million to grow and expand the company beyond the cannabis industry. According to a recent press release, the deal will include an initial payment of $250,000 to the owners of Hemp Choice, with the remainder paid in common and preferred stock. The newly acquired company will remain a wholly-owned subsidiary. The transaction is expected to close in approximately three months.

According to the company’s press release, this acquisition allows Diego Pellicer Worldwide to advance the company’s long-term business goals, which include expanding into a rapidly growing market. According to the company’s CEO, the company looks forward to expanding its business into the hemp and CBD spaces, which it has identified as some of the fastest-growing markets in the industry.

“In the Weeds” is McGuireWoods’ biweekly ounce of highlights in the budding cannabis, hemp and CBD industries. For more information, see our newsletter archive, our Edible Bites podcast series (available on Apple and Spotify), or visit our Cannabis, Hemp & CBD practice.